Sep. 25, 2013

ASSOCIATED PRESS/Ed Reinke

Written by

Competition for jobs and residents with Ohio and other surrounding states has created a sense of urgency among leaders in Northern Kentucky for tax reform.

But in Frankfort? Little has happened, and less is planned.

State lawmakers nibbled at tax reform this year with small tweaks but have yet to take a big bite. And many don’t expect big changes in 2014.

The General Assembly hasn’t acted on most of the 54 recommendations for tax reform made in 2012 by the task force assembled by Gov. Steve Beshear.

Border regions like Northern Kentucky in particular have paid keen interest to what happens to the state tax code and have pushed for incentives, such as the angel investor tax credit, to keep businesses from leaving the state. In speeches to local business leaders last week, the top elected officials in the three Northern Kentucky counties pushed for tax reform to keep pace with Ohio, whose governor has made it a priority to lure jobs across the Ohio River.

Ohio, for example, phased out its personal property tax on equipment and inventory in 2008.

“It’s something that companies will potentially look at and consider moving there for,” said Boone County Judge-executive Gary Moore. “We need the Legislature to look at how we can become more competitive.”

Beshear in early 2012 had hoped to jump-start tax reform and assembled a task force of leaders in business, education and government to recommend changes to state taxes to make it fairer and more competitive. The task force’s report was unveiled at a Frankfort press conference early in 2012.

• Establish an angel investor tax credit, which would provide investors a tax credit for investing in startups.

• Exempt inventory from state property tax.

• Freeze the state property tax rate at 12 cents per $100 of value.

Abramson: Tax reform study won't fail as previous 12 did

Lt. Gov. Jerry Abramson, who chaired the task force, said he doesn’t think the task force’s work will cometo nothing like many of the 12 other tax reform studies the state has commissioned since 1982.

There are notable exceptions, such as the 2005 tax reform package passed under the administration of Gov. Ernie Fletcher. That included creating another income tax bracket for the first time since 1950.

“We spent a year; we had public hearings in every congressional district,” Abramson told The Enquirer while visiting Northern Kentucky University on Monday. “In every congressional district we had educators come to speak. When we were here in Northern Kentucky, (NKU) President (James) Votruba spoke to us. We heard from superintendents of schools, principals, counselors, mental health leaders.”

But lawmakers say it won’t be easy.

Senate Majority Leader Damon Thayer, R-Georgetown, said he has yet to see a proposal for tax reform from the governor. Many of the tax reforms proposed by the task force raise too many taxes to get passed by the Republican-controlled Senate, he said.

“I had lunch with the governor a few weeks ago, and it’s not even clear to me if tax reform will come up in 2014,” Thayer told The Enquirer. “We might have to wait until 2015 after legislative elections have occurred. I’ve yet to see a proposal from the governor.”

He said he will attempt to pass the angel investor tax credit in the next session.

Beshear, who is on an economic development trip this week in Europe, was unavailable for an interview but issued a statement that he continues to meet with legislators to come up with a tax reform plan.

“As we approach the upcoming budget session in January 2014, I will work directly with legislators to determine the most viable path forward for other recommendations from the Commission,” Beshear said in a statement.

But many lawmakers, including Beshear’s fellow Democrats, feel major tax reform will take a long time.

Comprehensive tax reform won’t likely happen in 2014, said State Rep. Rick Rand, the chairman of the House Appropriations and Revenue committee responsible for the state budget.

“There are so many organizations and interest groups that have a huge vested interest in it,” said Rand, a Democrat from Trimble County. “When you start dealing with all of them at once, it is very difficult.”

NKY expecting a long wait on tax reform progress

The General Assembly did pass 11 of the recommendations as part of pension reform this year, but many were small tweaks or clarifications of legal language. One of the more notable changes was the trade-in tax credit for new car purchases, which gives people a tax credit for the value of the used car the purchaser trades in for a new car.

The slow progress doesn’t discourage Beshear and Abramson. Abramson hopes to get agreement between Republicans and Democrats on at least some of the proposals that can be done incrementally.

“When people take the time to look at the proposals, there are tax cuts that focus on business to give us a more competitive position to attract investment and create jobs, and at the same time there are some tax increases, like on cigarettes, ” Abramson said.

The General Assembly in the next session won’t likely make major policy changes, such as substituting a sales tax for an income tax – as many Republicans have pushed. But cities and counties will push for smaller tax changes.

A bill introduced last year that would give cities and counties the option to put on a ballot a temporary sales tax to fund specific projects had the support of many local governments in Northern Kentucky. Both the Kentucky League of Cities and the Kentucky Association of Counties plan on pushing that measure in the 2014 General Assembly session.

“It boils down to what I think our organization’s bottom line has been, give the local leaders various tools in the toolbox to set the right menu of options in their community that works best for them,” said J.D. Chaney, director of governmental affairs for the Kentucky League of Cities.

Chaney thinks further reform will take time.

“The cities realize it will be a long hard haul on that, similar to the way it was with the pensions,” he said. “Six years ago, pension reform was their top priority, and it took awhile for the policymakers to embrace the need to do that.” ⬛